10-Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark one)
(X)	Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the Quarter ended March 31, 2003

(   )	Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
	For the transition period from            to

Commission File No. 1-12911

GRANITE CONSTRUCTION INCORPORATED

State of Incorporation:	I.R.S. Employer Identification Number:
Delaware	77-0239383

Corporate Administration:

585 W. Beach Street
Watsonville, California 95076
(831) 724-1011

Indicate by checkmark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes  ( X)      No  (  )

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of May 12, 2003.

Class	Outstanding
Common Stock, $0.01 par value	41,540,937 shares

Indicate by checkmark whether the registrant is an accelerated filer (as defined in Rule 12(b)-2 of the Exchange Act) Yes (X)      No   (   )

TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION
	Item 1. FINANCIAL STATEMENTS
		CONDENSED CONSOLIDATED BALANCE SHEETS
		CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS)
		CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
		Notes to the Condensed Consolidated Financial Statements
	Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
	Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
	Item 4. CONTROLS AND PROCEDURES
PART II. OTHER INFORMATION
	Item 1. LEGAL PROCEEDINGS
	Item 2. CHANGES IN SECURITIES
	Item 3. DEFAULTS UPON SENIOR SECURITIES
	Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
	Item 5. OTHER INFORMATION
	Item 6. EXHIBITS AND REPORTS ON FORM 8-K
SIGNATURES
Exhibit 10.1
Exhibit 99.1
Exhibit 99.2

GRANITE CONSTRUCTION INCORPORATED

Index

			Page
PART I. FINANCIAL INFORMATION				3
	Item 1.	Financial Statements (unaudited)
		Condensed Consolidated Balance Sheets as of March 31, 2003 and December 31, 2002		4
		Condensed Consolidated Statements of Income (Loss) for the Three Months Ended March 31, 2003 and 2002		5
		Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2003 and 2002		6
		Notes to the Condensed Consolidated Financial Statements		7
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		11
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk		19
	Item 4.	Controls and Procedures		19
PART II. OTHER INFORMATION				20
	Item 1.	Legal Proceedings		21
	Item 2.	Changes in Securities		21
	Item 3.	Defaults Upon Senior Securities		21
	Item 4.	Submission of Matters to a Vote of Security Holders		21
	Item 5.	Other Information		21
	Item 6.	Exhibits and Reports on Form 8-K		21

2

PART I. FINANCIAL INFORMATION

3

Item 1. FINANCIAL STATEMENTS (unaudited)

Granite Construction Incorporated

CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)

					March 31			December 31
					2003			2002
					(Unaudited)
				Assets
Current assets
	Cash and cash equivalents				$	75,043		$	52,032
	Short-term marketable securities					74,780			96,900
	Accounts receivable, net					210,060			265,896
	Costs and estimated earnings in excess of billings					42,147			42,966
	Inventories					30,965			29,984
	Deferred income taxes					23,149			23,056
	Equity in construction joint ventures					27,432			24,329
	Other current assets					7,739			12,732
		Total current assets				491,315			547,895
Property and equipment, net						354,182			347,963
Long-term marketable securities						39,596			33,762
Investments in affiliates						23,001			18,970
Other assets						39,439			35,229
					$	947,533		$	983,819
			Liabilities and Stockholders’ Equity
Current liabilities
	Current maturities of long-term debt				$	8,914		$	8,640
	Accounts payable					99,963			118,813
	Billings in excess of costs and estimated earnings					93,192			105,725
	Accrued expenses and other current liabilities					85,641			94,321
		Total current liabilities				287,710			327,499
Long-term debt						129,289			132,380
Other long-term liabilities						15,696			13,742
Deferred income taxes						40,011			40,011
Commitments and contingencies
Minority interest in consolidated subsidiaries						14,048			15,318
Stockholders’ equity
	Preferred stock, $0.01 par value, authorized 3,000,000 shares, none outstanding					—			—
	Common stock, $0.01 par value, authorized 100,000,000 shares; issued and outstanding 41,540,937 shares in 2003 and 41,257,015 in 2002					415			413
	Additional paid-in capital					73,962			69,390
	Retained earnings					404,247			398,383
	Accumulated other comprehensive loss					(1,569	)		(1,402	)
						477,055			466,784
	Unearned compensation					(16,276	)		(11,915	)
						460,779			454,869
					$	947,533		$	983,819

The accompanying notes are an integral part of these condensed consolidated financial statements.

4

Granite Construction Incorporated

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS)

(Unaudited - in thousands, except per share data)

Three Months Ended March 31,			2003			2002
Revenue:
	Construction		$	262,466		$	237,862
	Material sales			39,694			31,283
		Total revenue		302,160			269,145
Cost of revenue:
	Construction			234,244			215,235
	Material sales			34,899			26,998
		Total cost of revenue		269,143			242,233
	Gross Profit			33,017			26,912
General and administrative expenses				36,550			30,455
	Operating loss			(3,533	)		(3,543	)
Other income (expense):
	Interest income			1,486			1,990
	Interest expense			(2,109	)		(1,645	)
	Gain on sales of property and equipment			296			216
	Equity in income of affiliates			18,015			522
	Other, net			327			(168	)
				18,015			915
	Income (loss) before income taxes and minority interest			14,482			(2,628	)
Provision for (benefit from) income taxes				5,241			(985	)
	Income (loss) before minority interest			9,241			(1,643	)
Minority interest in loss of consolidated subsidiaries				777			—
	Net income (loss)		$	10,018		$	(1,643	)
Net income (loss) per share
	Basic		$	0.25		$	(0.04	)
	Diluted		$	0.25		$	(0.04	)
Weighted average shares of common stock
	Basic			40,048			39,920
	Diluted			40,510			39,920
Dividends per share			$	0.10		$	0.08

The accompanying notes are an integral part of these condensed consolidated financial statements.

5

Granite Construction Incorporated

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited - in thousands)

Three Months Ended March 31,				2003			2002
Operating Activities
	Net income (loss)			$	10,018		$	(1,643	)
	Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
		Depreciation, depletion and amortization			17,403			12,948
		Gain on sales of property and equipment			(296	)		(216	)
		Amortization of unearned compensation			1,506			1,457
		Minority interest in loss of consolidated subsidiaries			(777	)		—
		Equity in income of affiliates			(18,015	)		(522	)
	Changes in assets and liabilities:
		Accounts and notes receivable			55,991			46,226
		Inventories			(981	)		(1,577	)
		Equity in construction joint ventures			(3,103	)		3,495
		Other assets			6,050			(5,076	)
		Accounts payable			(18,850	)		(35,801	)
		Billings in excess of costs and estimated earnings, net			(11,714	)		(7,381	)
		Accrued expenses and other liabilities			(10,708	)		(14,548	)
			Net cash provided by (used in) operating activities		26,524			(2,638	)
Investing Activities
	Purchases of marketable securities				(43,475	)		(89,716	)
	Maturities of marketable securities				59,501			95,407
	Additions to property and equipment				(20,139	)		(12,099	)
	Proceeds from sales of property and equipment				536			530
	Distributions from affiliates, net				13,984			—
	Other investing activities				(1,775	)		(173	)
			Net cash provided by (used in) investing activities		8,632			(6,051	)
Financing Activities
	Repayments of long-term debt				(7,718	)		(6,789	)
	Dividends paid				(3,301	)		(3,288	)
	Repurchase of common stock and other				(1,126	)		(4,131	)
			Net cash used in financing activities		(12,145	)		(14,208	)
Increase (decrease) in cash and cash equivalents					23,011			(22,897	)
Cash and cash equivalents at beginning of period					52,032			125,174
Cash and cash equivalents at end of period				$	75,043		$	102,277
Supplementary Information
	Cash paid during the period for:
		Interest		$	2,546		$	2,248
		Income taxes			3,994			502
	Non-cash investing and financing activity:
		Restricted stock issued for services		$	5,826		$	7,022
		Dividends accrued but not paid			4,154			3,303
		Financed acquisition of long-term asset			4,004			—

The accompanying notes are an integral part of these condensed consolidated financial statements.

6

Granite Construction Incorporated

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1.	Basis of Presentation: The condensed consolidated financial statements included herein have been prepared by Granite Construction Incorporated (“we”, “us”, “our” or “Granite”) without audit, pursuant to the rules and regulations of the Securities and Exchange Commission and should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2002. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted, although we believe the disclosures which are made are adequate to make the information presented not misleading. Further, the condensed consolidated financial statements reflect, in the opinion of management, all normal recurring adjustments necessary to present fairly our financial position at March 31, 2003 and the results of our operations and cash flows for the periods presented. The December 31, 2002 condensed consolidated balance sheet data was derived from audited consolidated financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America.
	Interim results are subject to significant seasonal variations and the results of operations for the three months ended March 31, 2003 are not necessarily indicative of the results to be expected for the full year.
2.	Newly Effective and Recently Issued Accounting Pronouncements:
	Recent Accounting Pronouncements: In August 2001, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards No. 143 (“SFAS 143”), “Accounting for Asset Retirement Obligations,” which was effective for our fiscal year beginning January 1, 2003. SFAS 143 addresses financial accounting and reporting obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. SFAS 143 requires, among other things, that the retirement obligations be recognized when they are incurred and displayed as liabilities on the balance sheet. In addition, the asset’s retirement costs are to be capitalized as part of the asset’s carrying amount and subsequently allocated to expense over the asset’s useful life. The adoption of SFAS 143 did not have a material effect on our financial position, results of operations or cash flows.
	In November 2002, the FASB issued Interpretation No. 45 (“FIN 45”), “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others.” FIN 45 requires certain disclosures to be made by a guarantor in its interim and annual financial statements about its obligations under certain guarantees that it has issued. It also requires that a guarantor recognize, at the inception of a guarantee, a liability for the fair value of the obligation undertaken in issuing the guarantee. FIN 45 supercedes FASB Interpretation No. 34, “Disclosure of Indirect Guarantees of Indebtedness of Others”. The disclosure provisions of FIN 45 are effective for financial statements of both interim and annual periods that end after December 15, 2002 and the initial recognition and measurement provisions are effective on a prospective basis to guarantees issued or modified after December 31, 2002. The adoption of the prospective measurement provisions of this statement did not have a material effect on our financial position, results of operations or cash flows.
	In January 2003, the FASB issued Interpretation No. 46 (“FIN 46”), “Consolidation of Variable Interest Entities — an Interpretation of ARB No. 51.” FIN 46 addresses consolidation accounting for certain entities in which equity investors do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. FIN 46 is effective immediately for all variable interest entities created or acquired after January 31, 2003.

7

Granite Construction Incorporated
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

	For variable interest entities created or acquired prior to February 1, 2003, the provisions of FIN 46 must be applied for the first interim or annual period beginning after June 15, 2003. We are in the process of assessing the impact, if any, of FIN 46 on our financial position or results of operations.
3.	Inventories: Inventories consist primarily of quarry products valued at the lower of average cost or market.
4.	Property and Equipment:

	March 31, 2003
In thousands	(Unaudited)		December 31, 2002
Land	$	51,157	$	50,697
Quarry property		77,311		75,459
Buildings and leasehold improvements		61,206		59,229
Equipment and vehicles		672,851		656,857
Office furniture and equipment		12,200		11,782
		874,725		854,024
Less accumulated depreciation, depletion and amortization		520,543		506,061
	$	354,182	$	347,963

5. Earnings Per Share:

			Three Months Ended
			March 31,
In thousands, except per share data			2003		2002
Numerator – basic and diluted earnings per share Net income (loss)			$	10,018	$	(1,643	)
Denominator – basic earnings per share
	Weighted average common stock outstanding			41,253		41,153
	Less weighted average restricted stock outstanding			1,205		1,233
	Total			40,048		39,920
Basic earnings (loss) per share			$	0.25	$	(0.04	)
Denominator – diluted earnings per share
	Denominator – basic earnings per share			40,048		39,920
	Effect of dilutive securities:
		Common stock options		16		—
		Restricted stock		446		—
		Total		40,510		39,920
Diluted earnings (loss) per share			$	0.25	$	(0.04	)

Common stock options, warrants and common stock equivalents representing 115 shares and 714 shares have been excluded from the calculation of diluted earnings per share for the quarters ended March 31, 2003 and 2002, respectively, because their effects are anti-dilutive.

6. Comprehensive Income (Loss): The components of comprehensive income (loss), net of tax, are as follows:

		Three Months Ended
		March 31,
In thousands		2003			2002
Net income (loss)		$	10,018		$	(1,643	)
Other comprehensive income (loss):
	Changes in net unrealized losses on investments		(167	)		20
Total comprehensive income (loss)		$	9,851		$	(1,623	)

8

Granite Construction Incorporated
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

7.	Commitments and Contingencies:
	Litigation: Our wholly-owned subsidiary, Granite Construction Company (“GCCO”), as a member of a joint venture, Wasatch Constructors (“Wasatch”), is among a number of construction companies, including Wasatch, who, together with the Utah Department of Transportation (“UDOT”), are named as defendants in a lawsuit filed in the United States District Court for the District of Utah. The plaintiffs are two independent trucking contractors who filed the lawsuit on behalf of the United States under the federal False Claims Act seeking to recover damages and civil penalties in excess of $46,400,000. The lawsuit alleges that, beginning in 1997 and thereafter, the defendants submitted false claims to the United States Government during the reconstruction of a portion of Interstate 15 in the Salt Lake Valley pursuant to a prime contract between UDOT and Wasatch.
	Among other things, the plaintiffs allege that certain defendants, who were subcontractors to Wasatch defrauded the Government by charging Wasatch for dirt and fill material they did not provide and that Wasatch and UDOT knowingly paid for such excess material. The plaintiffs also allege that Wasatch committed certain other acts including providing substandard workmanship and materials; failure to comply with clean air and clean water standards and the filing of false certifications regarding its entitlement to the payment of bonuses. The original complaint was filed in January, 1999 and the Third Amended Complaint was filed in February, 2003.
	Although GCCO owns a 23% interest in Wasatch, it was not the managing partner of Wasatch nor was it principally involved in the ongoing management of the project. We and GCCO believe that the allegations in the lawsuit are without merit and intend to contest them vigorously. The lawsuit is in the preliminary stage and we cannot predict its outcome with certainty. The litigation process is inherently uncertain, and this type of litigation is particularly complex and can extend for a protracted period of time. As a result, GCCO’s defense of the lawsuit, regardless of its eventual outcome, may be costly. Should the outcome of the lawsuit be adverse to GCCO, it could be required to pay significant monetary damages. In addition, since GCCO is a general partner of Wasatch, it would be jointly and severally liable for damages or penalties assessed against Wasatch, although we and GCCO have no reason to believe that the other joint venture partners would not bear their pro rata share of any such damages or penalties.
	We are a party to a number of other legal proceedings and believe that the nature and number of these proceedings are typical for a construction firm of our size and scope. Our litigation typically involves claims regarding public liability or contract related issues. While management currently believes that the ultimate outcome of these proceedings, individually and in the aggregate, will not have a material adverse effect on our financial position or overall trends in results of operations, litigation is subject to inherent uncertainties. Were an unanticipated unfavorable ruling to occur, there exists the possibility of a material adverse impact on the results of operations for the period in which the ruling occurs.
8.	Business Segment Information:
	We have two reportable segments: the Branch Division and the Heavy Construction Division (“HCD”). The Branch Division is comprised of branch offices that serve local markets, including our majority owned subsidiary, Wilder Construction Company, while HCD pursues major infrastructure projects throughout the nation. HCD focuses on building larger heavy-civil projects with contract durations that are frequently greater than two years, while the Branch

9

Granite Construction Incorporated
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Division projects are typically smaller in size and shorter in duration. HCD has been the primary participant in our construction joint ventures.

The accounting policies of the segments are the same as those described in the summary of significant accounting policies contained in our 2002 Annual Report on Form 10-K. We evaluate performance based on operating profit or loss, which does not include income taxes, interest income, interest expense or other income (expense).

Information about Profit and Assets:

Three Months Ended March 31 (in thousands)		HCD			Branch			Total
2003
	Revenues from external customers	$	132,545		$	169,615		$	302,160
	Inter-segment revenue transfer		(2,460	)		2,460			—
	Net revenue		130,085			172,075			302,160
	Depreciation and amortization		2,774			9,683			12,457
	Operating profit (loss)		6,864			(3,259	)		3,605
	Property and equipment		44,149			293,314			337,463
2002
	Revenues from external customers	$	123,388		$	145,757		$	269,145
	Inter-segment revenue transfer		(5,273	)		5,273			—
	Net revenue		118,115			151,030			269,145
	Depreciation and amortization		2,808			8,145			10,953
	Operating profit (loss)		(870	)		6,068			5,198
	Property and equipment		40,373			199,489			239,862

Reconciliation of Segment Profit to Consolidated Totals:

Three Months Ended March 31 (in thousands)	2003			2002
Profit:
Total profit for reportable segments	$	3,605		$	5,198
Other income		18,015			915
Unallocated other corporate expenses		(7,138	)		(8,741	)
Income (loss) before income taxes and minority interest	$	14,482		$	(2,628	)

9.

Investments in Affiliates:

On January 3, 2003, the California Private Transportation Company, LP (“CPTC”), of which we are a 22.22% limited partner, closed the sale of the State Route 91 Toll Road Franchise to the Orange County Transportation Authority for $72.5 million in cash and the assumption of $135.0 million in long-term debt. We completed construction of the $60.4 million project in 1995 and have maintained an equity interest in the partnership since its inception. Included in other income for the quarter ended March 31, 2003 is $18.4 million related to this sale by CPTC.

10

Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward-Looking Disclosure:

This Quarterly Report on Form 10-Q contains “ forward-looking statements” within the meaning of the Private Litigation Reform Act of 1995 regarding future events and the future results of Granite that are based on current expectations, estimates, forecasts, and projects as well as the beliefs and assumptions of Granite’s management. Words such as “outlook”, “believes”, “expects”, “appears”, “may”, “will”, “should”, “anticipates” or the negative thereof or comparable terminology, are intended to identify such forward-looking statements. These forward-looking statements are only predictions and are subject to risks, uncertainties and assumptions that are difficult to predict. Therefore actual results may differ materially and adversely from those expressed in any forward-looking statements. Factors that might cause or contribute to such differences include, but are not limited to, those discussed in our Annual Report on Form 10-K under the section entitled “Risk Factors”. You should not place undue reliance on these forward-looking statements, which speak only as of the date of this Report. Granite undertakes no obligation to revise or update publicly any forward-looking statements for any reason.

Results of Operations

Revenue Three months ended March 31,			2003					2002
(in thousands)			Amount		Percent			Amount		Percent
Revenue by Division:
	Branch Division		$	172,075		56.9	%	$	151,030		56.1	%
	Heavy Construction Division			130,085		43.1	%		118,115		43.9	%
			$	302,160		100.0	%	$	269,145		100.0	%
Revenue by Geographic Area:
	California		$	111,002		36.7	%	$	103,059		38.3	%
	West (excluding California)			96,034		31.8	%		71,809		26.7	%
	Midwest			9,845		3.3	%		16,603		6.2	%
	Northeast			28,187		9.3	%		20,054		7.4	%
	South			57,092		18.9	%		57,620		21.4	%
			$	302,160		100.0	%	$	269,145		100.0	%
Revenue by Market Sector:
	Federal agencies		$	9,330		3.1	%	$	11,284		4.2	%
	State agencies			110,309		36.5	%		121,217		45.0	%
	Local public agencies			96,391		31.9	%		57,311		21.3	%
		Total public sector		216,030		71.5	%		189,812		70.5	%
	Private sector			46,436		15.4	%		48,050		17.9	%
	Material sales			39,694		13.1	%		31,283		11.6	%
			$	302,160		100.0	%	$	269,145		100.0	%

Revenue: Revenue for the three months ended March 31, 2003 increased over the three months ended March 31, 2002 by $33.0 million or 12.3%. Branch Division revenue in 2003 included $17.7 million of revenue from our majority owned Wilder Construction Company (“Wilder”) subsidiary, which was consolidated in our financial statements beginning in the second quarter of 2002 and $6.9 million of revenue from the businesses acquired from Robinson Construction Company and Parnum Paving, Inc. in the second quarter of 2002 (“Northern California Businesses”). Excluding the Wilder and Northern

11

California Businesses’ revenue, Branch Division revenue for the first quarter of 2003 decreased compared with the 2002 first quarter by $3.6 million or 2.4%. This $3.6 million decrease is attributable to a $9.6 million, or 21.3% decrease in Branch Division private sector revenue, partially offset by a $4.5 million, or 14.4% increase in revenue from the sale of materials and a $1.5 million, or 1.9% increase in public sector revenue. We believe the decreased private sector revenue was primarily due to a general slowdown in private development projects due to a weaker economic climate. The increased revenue from the sale of materials was due primarily to higher volume in many of our locations.

Revenue from our Heavy Construction Division increased $12.0 million, or 10.1%, in the quarter ended March 31, 2003 compared with the quarter ended March 31, 2002, due primarily to larger volume from higher backlog at the beginning of the 2003 quarter.

Backlog			March 31					December 31					March 31
			2003					2002					2002
(in thousands)			Amount		Percent			Amount		Percent			Amount		Percent
Backlog by Division:
	Branch Division		$	527,147		28.2	%	$	490,756		26.4	%	$	365,890		27.3	%
	Heavy Construction Division			1,343,681		71.8	%		1,365,695		73.6	%		973,325		72.7	%
			$	1,870,828		100.0	%	$	1,856,451		100.0	%	$	1,339,215		100.0	%
Backlog by Geographic Area:
	California		$	264,106		14.1	%	$	270,220		14.6	%	$	283,830		21.2	%
	West (excluding California)			463,986		24.8	%		452,543		24.4	%		262,599		19.6	%
	Midwest			78,356		4.2	%		88,150		4.7	%		144,931		10.8	%
	Northeast			469,449		25.1	%		494,916		26.6	%		212,106		15.9	%
	South			594,931		31.8	%		550,622		29.7	%		435,749		32.5	%
			$	1,870,828		100.0	%	$	1,856,451		100.0	%	$	1,339,215		100.0	%
Backlog by Market Sector:
	Federal agencies		$	87,386		4.7	%	$	96,469		5.2	%	$	40,761		3.0	%
	State agencies			798,061		42.7	%		749,778		40.4	%		668,151		49.9	%
	Local public agencies			823,067		43.9	%		858,313		46.2	%		515,760		38.5	%
		Total public sector		1,708,514		91.3	%		1,704,560		91.8	%		1,224,672		91.4	%
	Private sector			162,314		8.7	%		151,891		8.2	%		114,543		8.6	%
			$	1,870,828		100.0	%	$	1,856,451		100.0	%	$	1,339,215		100.0	%

Backlog: Our backlog at March 31, 2003 of $1,870.8 million was $14.4 million higher than our backlog at December 31, 2002 and $531.6 million higher than our backlog at March 31, 2002. Our Branch Division backlog at March 31, 2003 and December 31, 2002 included backlog of $135.5 million and $95.2 million, respectively from our newly consolidated Wilder subsidiary and the Northern California Businesses acquired in the second quarter of 2002. HCD backlog increased $370.4 million, or 38.1%, from March 31, 2002 to March 31, 2003 due primarily to our expanded capabilities in bidding and executing the larger more complex work available in the market as well as the impact of our expansion into New York.

Our backlog of projects in the private sector increased by $10.4 million from December 31, 2002 to March 31, 2003, representing a $24.6 million increase in HCD backlog, partially offset by a decrease in Branch Division private sector backlog of $14.2 million, or 21.9%. We believe the decreased Branch Division private sector backlog was attributable to the impact of a slowdown in private development projects due to a relatively weak economic climate (see “Outlook”). Awards in the first quarter of 2003 included a $75.6 million tollroad extension project in Texas and a $18.3 million runway project in Alaska in our Wilder subsidiary.

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Gross Profit Three months ended March 31,	2003			2002
(in thousands)
Total gross profit	$	33,017		$	26,912
Percent of revenue		10.9	%		10.0	%

Gross Profit: Our gross profit as a percent of revenue increased to 10.9% in the first quarter of 2003 from 10.0% in the first quarter of 2002. Contributing to the increase was the absence of the first quarter 2002 recognition of additional costs to complete two New York area projects that negatively impacted gross margin in the 2002 quarter, partially offset by lower Branch Division margins, due primarily to the effect of increased competition in a challenging economic environment, and an increase in the revenue from projects less than 25% complete in the 2003 quarter from $25.4 million in 2002 to $41.0 million in 2003. We recognize revenue only to the extent of cost, deferring profit recognition, until a project reaches 25% complete.

Cost of revenue consists of direct costs on contracts, including labor and materials, subcontractor costs, direct overhead costs and equipment expense (primarily depreciation, maintenance and repairs). Although the composition of costs varies with each contract, our gross profit margins were not significantly impacted by changes in any one of these costs during the first quarter of 2003.

General and Administrative Expenses Three months ended March 31,		2003			2002
(in thousands)
Salaries and related expenses		$	21,646		$	16,841
Incentive compensation, discretionary profit sharing and other variable compensation			4,429			2,518
Other general and administrative expenses			10,475			11,096
	Total		36,550			30,455
Percent of revenue			12.1	%		11.3	%

General and Administrative Expenses: General and Administrative expenses increased by $6.1 million in the three months ended March 31, 2003 compared with the three months ended March 31, 2002. Included in the increase was approximately $5.1 million in costs associated with the newly consolidated Wilder subsidiary and the Northern California Businesses acquired in the second quarter of 2002. Variable compensation increased in the first quarter of 2003 due primarily to higher discretionary profit sharing associated with the CPTC investment income recognition (see “Other Income/Expense”). Other general and administrative costs include information technology, occupancy, office equipment and supplies, depreciation, travel and entertainment, outside services, advertising and marketing, training and other miscellaneous expenses, none of which individually exceeded 10% of total general and administrative expense.

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Operating Loss Three months ended March 31,		2003			2002
(in thousands)
Branch Division		$	(3,259	)	$	6,068
Heavy Construction Division			6,864			(870	)
Unallocated other corporate expenses			(7,138	)		(8,741	)
	Total	$	(3,533	)	$	(3,543	)

Operating Loss: Our Branch Division’s contribution to operating income decreased in the first quarter of 2003 compared with the first quarter of 2002 due primarily to the factors described in “Gross Profit” above and operating losses generated by the newly consolidated Wilder subsidiary and the Northern California Businesses, which are typical in the first quarter due to the climates in which they operate. Our Heavy Construction Division’s contribution to operating income increased in the first quarter of 2003 compared with the first quarter of 2002 due primarily to increased volume at a higher profit margin as described in “Revenue” and “Gross Profit” above. Unallocated other corporate expenses principally comprise corporate general and administrative expenses.

Other Income (Expense) Three months ended March 31,		2003			2002
(in thousands)
Interest income		$	1,486		$	1,990
Interest expense			(2,109	)		(1,645	)
Gain on sales of property and equipment			296			216
Equity in income of affiliates			18,015			522
Other, net			327			(168	)
	Total	$	18,015		$	915

Other Income(Expense): Included in other income (expense) in the first quarter of 2003 is $18.4 million related to the sale of the State Route 91 Tollroad Franchise by the California Private Transportation Corporation, of which we are a 22.2% limited partner. Excluding this transaction, equity in income of affiliates decreased largely due to the impact of discontinuing recording the results of T.I.C. Holdings, Inc. and Wilder in other income under the equity method of accounting during the second quarter of 2002.

Provision for (Benefit From) Income Taxes Three months ended March 31,	2003			2002
(in thousands)
Provision for (benefit from) income taxes	$	5,241		$	(985	)
Effective tax rate		36.2	%		37.5	%

Provision for Income Taxes: Our effective tax rate decreased to 36.2% in the first quarter of 2003 from 37.5% in the first quarter of 2002 due to the combined factors of higher percentage depletion deductions related to quarry properties and higher tax credits.

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Outlook

While our business continues to perform well in a challenging market environment, our short-term outlook remains uncertain due to political and economic factors that have yet to be resolved on both the state and federal levels. As we discussed in the Outlook section of our Annual Report on Form 10-K, some of the major issues we are following at this time are both the budget deficits in states in which we are active and the reauthorization of the federal highway bill.

California Budget Issue

Although the majority of states are facing fiscal deficits, no other state is confronted with a larger budget shortfall than California. Projections from the Legislative Analyst’s Office Fiscal Outlook and the Administration’s 2003-2004 Governor’s Budget estimates the shortfall in California to be between $21.1 billion and $34.6 billion, respectively. A number of proposals for revenue increases and cost reductions to close this deficit have been put forward. Governor Gray Davis’ original proposal includes a $1.8 billion cut in transportation funding, largely consisting of the suspension of the Proposition 42 transfer of the sales tax revenues derived from gasoline sales in 2003-04 ($1.1 billion), the “forgiveness” of a scheduled General Fund loan repayment to the State Highway Account ($500 million), and recapturing Transportation Congestion Relief Program funds not yet allocated in 2002-2003 ($100 million). Transportation revenues from the regular state cents-per-gallon excise tax on fuel may be borrowed on a short-term basis but must be repaid under the provisions of Proposition 2, passed in 1998.

In contrast, both California State Assembly and Senate Budget subcommittees have taken the position that any diversion of transportation revenues be made in the form of loans rather than a suspension of Proposition 42. Suspension would mean that the sales taxes on gasoline would not have to be repaid into transportation funds. This position is in line with the stand taken by the Republican caucuses in both legislative houses. A suspension of Proposition 42 takes two-thirds vote in both houses.

The state’s Transportation Congestion Relief Program (TCRP) is a one-time plan created by Governor Gray Davis in an attempt to reduce traffic congestion. Originally, the TCRP was funded by the state’s general fund surplus. In 2001, California’s economic downturn significantly reduced the state’s income and loans from the TCRP were made to the State General Fund. The Governor’s original budget proposal sought to have these loans forgiven, although the Legislature has moved in the direction of deferring repayment, rather than forgiving the loans. On May 7, an Assembly Budget Sub-committee voted to provide $207 million to meet cash flow obligations of previously allocated TCRP funds and an additional $252 million for TCRP allocations in 2003-04.

Facing such a significant fiscal challenge, the budget process will likely be long and drawn out and will not get started in earnest until the State issues its May budget revision which more accurately projects tax revenues. Though the deadline for a final California State budget is June 15, 2003, it is unlikely that the legislature will meet the deadline largely due to the requirement for a two-thirds vote of the Legislature on the final bills. The negotiations will be highly politically charged. In 2002, the deadline was exceeded by 67 days.

Federal Highway Bill Reauthorization

On the federal front, the Federal Transportation Reauthorization process is underway. The current federal highway bill, the Transportation Equity Act for the 21st Century (TEA 21), is scheduled to expire on September 30, 2003. In February 2003 , the President released his fiscal year 2004 budget that proposed funding for highways in FY’04 at $29.3 billion, gradually escalating over a 6-year period to just over $33 billion in FY’09. Viewed by the bipartisan leadership of the House Transportation and Infrastructure (T&I) committee as being inadequate to meet the needs of the nation’s transportation program, members

15

responded to the President’s budget with a proposal which provides $375 billion over six years for both highways and transit – a 70% increase over the prior bill.

Although the House Budget Committee has rejected the T&I proposal, the committee did succeed in achieving inclusion of language in the House budget resolution that would allow increased funding for highways if new revenue sources could be found. According to the T&I committee, measures to increase Highway Trust Fund (HTF) revenues include: drawing down the existing balance in the HTF; restoring the interest to the HTF; eliminating user fee evasion; directing all revenues from the existing gasohol use fees to the HTF and reimbursing the HTF for lost revenues from the gasohol user fee subsidy or eliminate the subsidy altogether. Another major point of contention is whether steps will be taken to increase and/or index the federal gas tax.

In April, 2003, the Conference Committee reached agreement on a budget resolution that funds highways at $231 billion, which falls midway between the Senate’s $255 billion level and the House’s $206 billion level. The non-binding budget resolution will be used as the blueprint for tax and spending decisions in FY 2004 and beyond, including transit and highway spending. House and Senate transportation leadership are reportedly displaying a strong show of unity in achieving the highest possible funding levels for transit and highways.

Operations

Operationally, it is still too early in the year to predict how our Branch Division will fare this year, particularly in California. We do have some concern as to the overall effect the California budget situation will have on our business and at what point an economic recovery is likely. While some of our branches are continuing to witness demand for site development for residential and commercial construction, others are anticipating a down year due to the current economic environment and its negative impact on the demand for private sector work in their areas. As we have noted in the past, a slowdown in private sector work generally translates into increased competition in the public sector bidding arena. While we have begun to see competition increase in some of our markets, it is too early to determine if this is an ongoing trend, and if so, how long it will continue. It is possible that our Branch Division operating income could be as much as 15% to 20% lower for the year ending December 31, 2003 than it was in 2002. However, we believe that a strong performance in HCD in 2003 has the potential to offset this possible decrease.

Looking ahead for HCD, operating margins could improve substantially in 2003 over 2002 based on the current backlog of ongoing work. They continue to witness a very good bidding environment across the country and over the past few years has seen a significant increase in transit and rail construction projects. While funding for many of these projects is guaranteed federal funding and/or supported by alternative funding mechanisms, Granite’s capabilities have also expanded over the years to enable us to pursue a greater variety of transportation-related projects. HCD is targeting these new opportunities and pursuing new markets in Missouri, Washington and Virginia while also continuing to pursue projects in its core geographic markets such as Texas, Florida and New York. There are several large highway, bridge and rail projects that HCD has its sights on including four highway projects in North Carolina totaling approximately $350 million, several highway and bridge projects in Washington totaling approximately $500 million, and light rail projects in Arizona, California, Oregon and Washington.

As is always the case, weather can play a significant role in the course of our operations. In the beginning of the second quarter of this year, we experienced unseasonably wet weather in most of our Branch Division markets. In some of these areas, rainfalls averaged 250 percent of normal, compared to last April where these same locations witnessed less than normal rainfall. As a result, it is possible that this wet weather could negatively impact revenues in the Branch Division for the month of April.

In summary, while we remain cautiously optimistic for the months ahead, we are very pleased with the strength of our current backlog and HCD’s potential bidding opportunities. We will be closely monitoring the transportation funding programs at the state and federal levels and will continue to move

16

forward on our strategy to grow the Company both internally and through acquisitions and to improve our financial performance in both divisions.

Liquidity and Capital Resources

		Three Months Ended
		March 31,
(in thousands)		2003			2002
Cash and cash equivalents		$	75,043		$	102,277
Net cash provided (used) by:
	Operating activities		26,524			(2,638	)
	Investing activities		8,632			(6,051	)
	Financing activities		(12,145	)		(14,208	)
Capital expenditures			20,139			12,099

Cash provided by operating activities of $26.5 million for the three months ended March 31, 2003 represents a $29.2 million increase from the amount used in operating activities in the same period in 2002. Changes in cash from operating activities primarily reflect seasonal variations based on the amount and progress of work being performed. As is typical in the our first quarter, accounts receivable, accounts payable, billings in excess of costs, net and accrued expenses are substantially lower than at December 31, 2002 due to lower first quarter volume.

Cash provided by investing activities of $8.6 million for the three months ended March 31, 2003 represents a $14.7 million increase from the amount used in investing activities in the same period in 2002, largely due to cash received related to the sale of the State Route 91 Tollroad Franchise by the California Private Transportation Corporation, of which we are a 22.2% limited partner. We have budgeted $68.3 million for capital expenditures in 2003, including Wilder, which includes amounts for construction equipment, aggregate and asphalt plants, buildings, leasehold improvements and the purchase of aggregate reserves.

Cash used by financing activities was $12.1 million for the three months ended March 31, 2003 and principally included payments of long-term debt and dividends during the quarter.

In addition to its working capital and cash generated from operations, we currently have access to funds under a $60.0 million bank revolving line of credit of which $58.7 million was available at March 31, 2003. Additionally, our Wilder subsidiary has a bank revolving line of credit of $10.0 million, all of which was available at March 31, 2003. Both lines of credit expire in June 2004.

Our cash and cash equivalents and short-term and long-term marketable securities totaled $189.4 million at March 31, 2003. We believe that our current cash and cash equivalents, short-term marketable securities, cash generated from operations and amounts available under our existing credit facilities will be sufficient to meet our expected working capital needs, capital expenditures, financial commitments and other liquidity requirements associated with our existing operations through at least the next twelve months.

Recent Accounting Pronouncements: In August 2001, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards No. 143 (“SFAS 143”), “Accounting for Asset Retirement Obligations,” which was effective for our fiscal year beginning January 1, 2003. SFAS 143 addresses financial accounting and reporting obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. SFAS 143 requires, among other things, that the retirement obligations be recognized when they are incurred and displayed as liabilities on the balance

17

sheet. In addition, the asset’s retirement costs are to be capitalized as part of the asset’s carrying amount and subsequently allocated to expense over the asset’s useful life. The adoption of SFAS 143 did not have a material effect on our financial position, results of operations or cash flows.

In November 2002, the FASB issued Interpretation No. 45 (“FIN 45”), “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others.” FIN 45 requires certain disclosures to be made by a guarantor in its interim and annual financial statements about its obligations under certain guarantees that it has issued. It also requires that a guarantor recognize, at the inception of a guarantee, a liability for the fair value of the obligation undertaken in issuing the guarantee. FIN 45 supercedes FASB Interpretation No. 34, “Disclosure of Indirect Guarantees of Indebtedness of Others”. The disclosure provisions of FIN 45 are effective for financial statements of both interim and annual periods that end after December 15, 2002 and the initial recognition and measurement provisions are effective on a prospective basis to guarantees issued or modified after December 31, 2002. The adoption of the prospective measurement provisions of this statement did not have a material effect on our financial position, results of operations or cash flows.

In January 2003, the FASB issued Interpretation No. 46 (“FIN 46”), “Consolidation of Variable Interest Entities - an Interpretation of ARB No. 51.” FIN 46 addresses consolidation accounting for certain entities in which equity investors do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. FIN 46 is effective immediately for all variable interest entities created or acquired after January 31, 2003. For variable interest entities created or acquired prior to February 1, 2003, the provisions of FIN 46 must be applied for the first interim or annual period beginning after June 15, 2003. We are in the process of assessing the impact, if any, of FIN 46 on our financial position or results of operations.

Website Access

Our website address is www.graniteconstruction.com. On our website we make available, free of charge, our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on form 8-K, and all amendments to those reports as soon as reasonably practicable after such material is electronically filed with or furnished to the Securities and Exchange Commission. The information on our website is not incorporated into, and is not part of, this report.

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Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

In February 2003, we entered into two interest rate swap agreements in order to gain access to the lower borrowing rates normally available on floating-rate debt, while avoiding the prepayment and other costs that would be associated with refinancing our long-term fixed-rate debt. The swaps purchased have a combined notional amount of $50.0 million, six-month maturity and provide for us to pay variable interest at LIBOR plus a set rate spread and receive fixed interest of between 6.54% and 6.96% The notional amount does not quantify risk or represent assets or liabilities, but rather, is used in the determination of cash settlement under the swap agreement. As a result of purchasing these swaps, we will be exposed to credit losses from counter-party non-performance; however, we do not anticipate any such losses from these agreements, which are with a major financial institution. The agreements will also expose us to interest rate risk should LIBOR rise during the term of the agreements. These swap agreements are accounted for under Statement of Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging Activities (“SFAS 133”). Under the provisions of SFAS 133, we initially recorded the interest rate swaps at fair value, and subsequently recorded any changes in fair value in other income, net. Fair value is determined based on quoted market prices, which reflect the difference between estimated future variable-rate payments and future fixed-rate receipts.

Item 4. CONTROLS AND PROCEDURES

(a) Evaluation of Disclosure Controls and Procedures

Within 90 days prior to the date of filing of this Report, we carried out an evaluation, under the supervision and with the participation of management, including our Chief Executive Officer and our Chief Financial Officer, of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-14(c) and 15d-14(c) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)). Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective for gathering, analyzing and disclosing the information we are required to disclose in the reports we file under the Exchange Act, within the time periods specified in the SEC’s rules and forms.

(b) Changes in Internal Controls

There have been no significant changes in our internal controls or in other factors that could significantly affect internal controls subsequent to the date of the evaluation described above.

19

PART II. OTHER INFORMATION

20

Item 1. LEGAL PROCEEDINGS

None

Item 2. CHANGES IN SECURITIES

None

Item 3. DEFAULTS UPON SENIOR SECURITIES

None

Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None

Item 5. OTHER INFORMATION

None

Item 6. EXHIBITS AND REPORTS ON FORM 8-K

a)	Exhibits
	10.1 – Amendment No. 2 to the Granite Construction Key Management Deferred Compensation Plan dated March 24, 2003
	99.1 – Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
	99.2 - Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
b)	Reports on Form 8-K
	None

21

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

		GRANITE CONSTRUCTION INCORPORATED
Date:	May 14, 2003	By:	/s/ William E. Barton
			William E. Barton
			Senior Vice President and Chief Financial Officer

22

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

I, David H. Watts, certify that:

1.	I have reviewed this quarterly report on Form 10-Q of Granite Construction Incorporated;
2.	Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
3.	Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;
4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a.	designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
b.	evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing of this quarterly report (the “Evaluation Date”); and
c.	presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date.

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors:

a.	all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and
b.	any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

6. The registrant’s other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date:	May 14, 2003	/s/ David H. Watts
		David H. Watts, Chief Executive Officer

23

CERTIFICATION OF CHIEF FINANCIAL OFFICER

I, William E. Barton, certify that:

1.	I have reviewed this quarterly report on Form 10-Q of Granite Construction Incorporated;
2.	Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
3.	Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;
4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a.	designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
b.	evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing of this quarterly report (the “Evaluation Date”); and
c.	presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date.

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors:

a.	all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and
b.	any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

6. The registrant’s other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date:	May 14, 2003	/s/ William E. Barton
		William E. Barton, Chief Financial Officer

24 EX-10.1 3 f90216exv10w1.txt EXHIBIT 10.1 Exhibit 10.1 GRANITE CONSTRUCTION INCORPORATED KEY MANAGEMENT DEFERRED COMPENSATION PLAN Amendment No. 2 - ----------------------------------------------------------------------------- WHEREAS, Granite Construction Incorporated (the "Company") maintains the Granite Construction Incorporated Key Management Deferred Compensation Plan (the "Plan") for the benefit of its eligible employees; WHEREAS, the Company desires to modify the definition of "Compensation" to conform to changes made by the Economic Growth and Tax Relief Reconciliation Act of 2001; and WHEREAS, the Company desires to clarify the provisions related to Discretionary Contributions, and to modify certain other provisions. NOW, THEREFORE, the Plan is hereby amended as follows: 1. Section 2(e) is restated, effective as of January 1, 2002, to read as follows: - 1 - (e) "Compensation" means "compensation" (as defined in the Company's tax-qualified retirement plans) in excess of $200,000 (as indexed under section 401(a)(17) of the Code) but not in excess of $300,000 (as indexed from time to time by the Committee). 2. Section 5 is restated, effective as of January 1, 2003, to read as follows: 5. Additions To Accounts. (a) Participant Compensation Deferrals. Each Participant may annually elect to defer the receipt of a whole percentage (up to 15% or such other percentage as may be determined by the Company's board of directors) of his or her Compensation. (b) Additional Deferrals. Under rules established by the Committee, each Participant may elect to defer an additional portion of the Participant's compensation equal to the full amount of the quarterly cash dividends that are paid to the Participant under Section 13(a) of the Granite Construction Employee Stock Ownership Plan. Each Participant may also elect to defer an additional portion of the Participant's compensation equal to the amount payable to the Participant under the Company's "cafeteria plan" under Section 125 of the Code. In addition, each Participant may elect to defer an additional portion of the Participant's compensation equal to the amount of up to 85% of the Participant's cash bonus (in 5% increments) payable under the Granite Construction Profit Sharing Cash Bonus Plan. (c) Company Matching Contributions. The Company will annually credit each Participant's Account with an amount equal to a percentage of the Compensation deferred by the Participant under Sections 5(a) or (b), which percentage will equal the matching contribution percentage determined under the Granite Construction Profit Sharing and 401(k) Plan for such Plan Year. (d) Discretionary Contributions. For each Plan Year in which a Participant elects to defer a portion of his or her compensation in accordance with Sections 5(a), the Company will credit each Participant's Account with an amount equal to a percentage of the Participant's Compensation that is equal to the total discretionary contribution percentage determined by the Company's board of directors for the Granite Construction Profit Sharing and 401(k) Plan and the Granite Construction Employee Stock Ownership Plan with respect to the Plan Year for which such Compensation was deferred. (e) Hypothetical Investment Experience. For each Plan Year, the balance of each Participant's Account will be credited quarterly with hypothetical earnings equal to one-quarter of the sum of the 30-day average of the Lehman Brothers long term bond - 2 - index (as published in the Wall Street Journal) determined as of the December 1 of the prior Plan Year, plus 100 basis points, or as determined by the Committee. 3. Section 7(d) is restated, effective as of January 1, 2003, to read as follows: (d) Special Rule for "For Cause" Terminations. If a Participant is terminated "for cause" (as such term is defined in section 6.5(iii) of the Granite Construction Incorporated 1999 Equity Incentive Plan), and the Participant forfeits all amounts other than his or her own Compensation deferrals, then notwithstanding Sections 6, 7(a) or 7(c), distribution of the vested portion of such Participant's Account will be made in a lump sum cash payment as soon as practicable following his or her termination of Company employment. To record the adoption of this Amendment No. 2 to the Plan, the Company has caused it to be executed this Monday, March 24, 2003. GRANITE CONSTRUCTION INCORPORATED By /s/ William G. Dorey -------------------------------- William G. Dorey, President By /s/ Michael Futch -------------------------------- Michael Futch, Secretary - 3 - EX-99.1 4 f90216exv99w1.htm EXHIBIT 99.1

Exhibit 99.1

CERTIFICATION PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002

          Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code), the undersigned officer of Granite Construction Incorporated (the “Company”) does hereby certify to such officer’s knowledge that:

          The Quarterly Report on Form 10-Q for the quarter ended March 31, 2003 of the Company fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, and information contained in the Form 10-Q fairly presents in all material respects the financial condition and results of operations of the Company.

Dated: May 14, 2003	/s/ David H. Watts
	David H. Watts
	Chairman of the Board, President & Chief
	Executive Officer

EX-99.2 5 f90216exv99w2.htm EXHIBIT 99.2

Exhibit 99.2

CERTIFICATION PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002

          Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code), the undersigned officer of Granite Construction Incorporated (the “Company”) does hereby certify to such officer’s knowledge that:

          The Quarterly Report on Form 10-Q for the quarter ended March 31, 2003 of the Company fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, and information contained in the Form 10-Q fairly presents in all material respects the financial condition and results of operations of the Company.

Dated: May 14, 2003	/s/ William E. Barton
	William E. Barton
	Senior Vice President & Chief Financial
	Officer

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EX-10.1

                                  Exhibit 10.1

                        GRANITE CONSTRUCTION INCORPORATED

                    KEY MANAGEMENT DEFERRED COMPENSATION PLAN

                                 Amendment No. 2

- -----------------------------------------------------------------------------

      WHEREAS, Granite Construction Incorporated (the "Company") maintains the
Granite Construction Incorporated Key Management Deferred Compensation Plan (the
"Plan") for the benefit of its eligible employees;

      WHEREAS, the Company desires to modify the definition of "Compensation" to
conform to changes made by the Economic Growth and Tax Relief Reconciliation Act
of 2001; and

      WHEREAS, the Company desires to clarify the provisions related to
Discretionary Contributions, and to modify certain other provisions.

      NOW, THEREFORE, the Plan is hereby amended as follows:

      1. Section 2(e) is restated, effective as of January 1, 2002, to read as
follows:


                                     - 1 -

            (e) "Compensation" means "compensation" (as defined in the Company's
      tax-qualified retirement plans) in excess of $200,000 (as indexed under
      section 401(a)(17) of the Code) but not in excess of $300,000 (as indexed
      from time to time by the Committee).

      2. Section 5 is restated, effective as of January 1, 2003, to read as
follows:


            5. Additions To Accounts.

            (a) Participant Compensation Deferrals. Each Participant may
      annually elect to defer the receipt of a whole percentage (up to 15% or
      such other percentage as may be determined by the Company's board of
      directors) of his or her Compensation.

            (b) Additional Deferrals. Under rules established by the Committee,
      each Participant may elect to defer an additional portion of the
      Participant's compensation equal to the full amount of the quarterly cash
      dividends that are paid to the Participant under Section 13(a) of the
      Granite Construction Employee Stock Ownership Plan. Each Participant may
      also elect to defer an additional portion of the Participant's
      compensation equal to the amount payable to the Participant under the
      Company's "cafeteria plan" under Section 125 of the Code. In addition,
      each Participant may elect to defer an additional portion of the
      Participant's compensation equal to the amount of up to 85% of the
      Participant's cash bonus (in 5% increments) payable under the Granite
      Construction Profit Sharing Cash Bonus Plan.

            (c) Company Matching Contributions. The Company will annually credit
      each Participant's Account with an amount equal to a percentage of the
      Compensation deferred by the Participant under Sections 5(a) or (b), which
      percentage will equal the matching contribution percentage determined
      under the Granite Construction Profit Sharing and 401(k) Plan for such
      Plan Year.

            (d) Discretionary Contributions. For each Plan Year in which a
      Participant elects to defer a portion of his or her compensation in
      accordance with Sections 5(a), the Company will credit each Participant's
      Account with an amount equal to a percentage of the Participant's
      Compensation that is equal to the total discretionary contribution
      percentage determined by the Company's board of directors for the Granite
      Construction Profit Sharing and 401(k) Plan and the Granite Construction
      Employee Stock Ownership Plan with respect to the Plan Year for which such
      Compensation was deferred.

            (e) Hypothetical Investment Experience. For each Plan Year, the
      balance of each Participant's Account will be credited quarterly with
      hypothetical earnings equal to one-quarter of the sum of the 30-day
      average of the Lehman Brothers long term bond


                                     - 2 -

      index (as published in the Wall Street Journal) determined as of the
      December 1 of the prior Plan Year, plus 100 basis points, or as determined
      by the Committee.

      3. Section 7(d) is restated, effective as of January 1, 2003, to read as
follows:

            (d) Special Rule for "For Cause" Terminations. If a Participant is
      terminated "for cause" (as such term is defined in section 6.5(iii) of the
      Granite Construction Incorporated 1999 Equity Incentive Plan), and the
      Participant forfeits all amounts other than his or her own Compensation
      deferrals, then notwithstanding Sections 6, 7(a) or 7(c), distribution of
      the vested portion of such Participant's Account will be made in a lump
      sum cash payment as soon as practicable following his or her termination
      of Company employment.

      To record the adoption of this Amendment No. 2 to the Plan, the Company
has caused it to be executed this Monday, March 24, 2003.

                                             GRANITE CONSTRUCTION

                                             INCORPORATED

                                             By  /s/ William G. Dorey
                                                --------------------------------
                                                 William G. Dorey, President


                                             By  /s/ Michael Futch
                                                --------------------------------
                                                Michael Futch, Secretary


                                     - 3 -

EX-99.1

exv99w1

EX-99.2

exv99w2